Buy Kims Ltd for the Target Rs 850 by Emkay Global Financial Services Ltd
KIMS reported an in-line quarter, with EBITDA growing 16% yoy, as losses from new units (Thane, Nashik, and Bengaluru) narrowed sequentially from Rs484mn in 4Q to Rs261mn in 1Q. With the Nashik unit seeing breakeven in 1Q and the Thane and Mahadevapura units achieving breakeven for July, Management remains confident of stabilizing the new clusters within the next 2-3 quarters. Ramp up of these clusters on the back of impending insurance empanelment, guidance of closure by end-2QFY27 for the Bengaluru units, along with commissioning of the new Kondapur facility (in its core cluster) should lend comfort on the margin trajectory ahead, in our view. With majority of the greenfield asset additions behind, we expect EBITDA CAGR of 33% over FY26-29E, as profitability improves across clusters. KIMS's leverage position has also improved significantly (net debt stands at Rs25.7bn as of Jun-26 vs Rs31.7bn in Mar-26) following a successful QIP and preference issue to promoters, thereby alleviating balance risks. While we remain constructive on KIMS’s ability to ramp up the new clusters, we anticipate gradual improvement in the margin trajectory in the Thane and Bengaluru units. Hence, we cut our FY28 revenue/EBITDA estimates by 4%/7%, respectively. We maintain BUY and cut Jun-27E TP by ~6% to Rs850 from Rs900, at 26x Jun-28E pre-IndAS EV/EBITDA (excluding minorities)
Growth trajectory sustains; new clusters yet to stabilize
KIMS’s 1QFY26 revenue grew 35% yoy to Rs11.8bn, on the back of OBD/ARPOB increasing 23%/10% yoy. Reported EBITDA grew 16% yoy to Rs2.2bn (in line with our/street’s estimates), with margin narrowing by 316bps to 18.9%, primarily due to EBITDA losses of Rs261mn at new units (Thane, Nashik, Bengaluru units). Mature clusters continued to perform well, with the Telangana/AP cluster delivering 16/17% yoy revenue growth. Adj PAT declined 47% yoy to Rs415mn on the back of higher interest costs (+156%) and D&A (+89%). Overall IP/OP volumes at the group level grew 27%/29% yoy, with ALOS improving 3% to 3.47 days. Payor mix in 1Q was stable (cash: 52%; insurance: 32%; corporate: 12%; and Aarogyasri: 4%). Net debt stands at Rs25.7bn as of Jun-26 (Mar-26: Rs31.7bn), with the QIP proceeds utilized to pay off debt. Further debt reduction is likely to occur in 2Q with the remaining equity proceeds
Outlook and risks
KIMS remains well-positioned for profitable growth, as performance across new units improves on the back of progress in onboarding insurance companies and mature clusters continuing to demonstrate stability. With new units achieving break-even (Nashik in 1Q, Mahadevapura/Thane in Jul-26), we expect the new clusters to stabilize within the next 2-3 quarters. Kerala performance was satisfactory, as the company added a new unit at Palakkad and guided for a high single-digit margin for FY27. Capacity expansion in the Telangana cluster (new Kondapur facility and renovation of the Secunderabad unit) is likely to further aid profitable growth over coming two years, and we expect revenue/EBITDA CAGR of 21%/33% over FY26-29E, respectively. Key risks: Delay in insurance empanelment, pledging of promoters’ shareholding, and any adverse regulatory ruling for healthcare services.
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